Building Inclusive Financial Sectors for Development

1. Building Inclusive Financial Sectors for Development The “Blue Book”: Issues for Policy Makers Global Conference on Access to Finance May 30-31, 2006 World Bank United Nations Capital Development Fund

2. Building Inclusive Financial Sectors for Development Role of UNCDF Invests in LDCs in Building Inclusive Financial Sectors Policy Advisor to UNDP on Microfinance Coordinated with UNDESA International Year of Microcredit

3. Resulted from one-year, global, multistakeholder consultative process. Steering Committee included: Building Inclusive Financial Sectors for Development Blue Book United Nations “Blue Book” on Building Inclusive Financial Sectors for Development released on 17 January 2006.

4. Key question: “Why are so many bankable clients unbanked?” Objective: To provide an analysis of why the vast majority of people do not yet have access to sound financial services. The result is a “Blue Book” not a “blueprint”, that …. Captures the emerging vision of an inclusive financial sector Suggests a variety of policy tools that national governments can use to extend reach of financial sectors in their national context Explores important policy, regulatory, and supervisory issues that all policy makers need to consider Serves as reference point for governments Building Inclusive Financial Sectors for Development Blue Book continued

5. “Inclusive Financial Sectors” are those characterized by: “Access at a reasonable cost of all bankable households and enterprises to the range of financial services for which they are ‘bankable’…” “Sound institutions, guided by appropriate internal management systems, industry performance standards, and performance monitoring by the market, as well as by sound prudential regulations where required.” “Financial and institutional sustainability as a means of providing access to financial services over time.” “Multiple providers of financial services, so as to bring cost-effective and a wide variety of alternatives to customers.” Building Inclusive Financial Sectors for Development Vision of Inclusive Finance “Inclusive Financial Sectors” must be “supported by a sound policy environment. Source: Building Inclusive Financial Sectors for Development, UNDESA and UNCDF, 2005.

6. What can governments do to support an inclusive financial sector? Develop coherent government policy stance fostering a competitive and fair financial sector Maintain macroeconomic stability through appropriate monetary and fiscal policies. If and when needed, build regulatory frameworks to allow all types of financial institutions to offer financial services to poor people. Encourage the involvement of the private sector in formulating poverty reduction strategies, and explicitly recognize its leading role in financial sector development, including microfinance. Invest in banking supervisory capacity. Develop policies to broaden and strengthen financial infrastructure that increases risk mitigation, transparency and efficiency, reduces costs, and enhances innovation. Building Inclusive Financial Sectors for Development Policy Tools for National Governments Source: CGAP, Donor Brief No. 19 & Building Inclusive Financial Sectors for Development, UNDESA and UNCDF, 2005.

7. … But the role of government in liberalization of interest rate ceilings, financial intermediation, and subsidized lending programs is still widely debated.and… Different national circumstances may lead policy makers to give different answers as to:How much intervention, what kind, where and when? Building Inclusive Financial Sectors for Development Options for Policymakers Source: Building Inclusive Financial Sectors for Development, UNDESA and UNCDF, 2005.

8. The Bluebook outlines options for policy makers…. Policymakers can opt to… Remove barriers to the entry of competent firms that wish to provide financial services for the poor. Treat all service providers the same way or allow preferential treatment. Consider which subsidies are valuable and which are counterproductive. Intervene more, less, in financial markets through mandates. Engage directly in providing financial services, or disengage from such activities. Building Inclusive Financial Sectors for Development Options for Policymakers continued Source: Building Inclusive Financial Sectors for Development, UNDESA and UNCDF, 2005.

9. The Blue Book recommends: Each country should have a vision and national strategy for building an inclusive financial sector. The process to build this vision and national strategy should encourage open and transparent discussion among stakeholders. Policies and implementation plans for financial inclusion should be integrated into financial sector development and poverty alleviation strategies. Building Inclusive Financial Sectors for Development Going Forward Defining the nature of government action requires sound analysis of the constraints faced and dialogue among all stakeholders, as well as profiting from international experience.

10. Building Inclusive Financial Sectors for Development Going Forward: using Bluebook UNCDF is using the Blue Book as a “tool” and “guide” for designing national strategies for financial inclusion in Africa and Asia, in line with the Paris Declaration. In addition…. • Broad ownership and use of the Blue Book among different stakeholders supporting national dialogue is encouraged. • Operational tool is being developed to facilitate use of the Blue Book in numerous countries.

11. BIFSA Programme Objectives: To build inclusive financial sectors in sub-Saharan Africa that provide sustainable access to financial services for poor and low income people and for small and micro enterprises. To generate employment, economic growth, and human development by increasing access to financial services for poor and low income people and by encouraging and supporting micro and small enterprises. Building Inclusive Financial Sectors for Development Going forward: using Bluebook in Africa Building Inclusive Financial Sectors in Africa (BIFSA) Initiative: BIFSA is a Joint Programme, initiated by UNDP and UNCDF • Additional partners are welcome • Project Term: 2004-2010 • Initial Budget: $42.6 Million

12. 1. Conduct Financial Sector Assessment. Gather data (Regulatory and Household) on access to financial services to establish a baseline and measure results. Evaluate legal, regulatory, and policy frameworks. Evaluate financial services infrastructure requirements. Evaluate human and institutional capacity and constraints. 2. Develop National Policy, Strategy and Action Plan. Legal, regulatory, policy environments. Financial Service Providers required to provide products and services and to strengthen financial sector. Financial services infrastructure requirements. FSP investment requirements. Coordinating, implementing, and monitoring requirements. 3. Execute National Implementation Plan. Building Inclusive Financial Sectors for Development Going forward: BIFSA BIFSA Programme is a Financial Sector Development approach that follows three steps set forth in the Blue Book:

13. Building Inclusive Financial Sectors for Development Going forward: using Bluebook in Africa “UN Conference in Building Inclusive Financial Sectors” Dakar, Senegal on 5-6 June 2006 • A forum for in-depth discussion among multiple stakeholders regarding the challenges, constraints, and opportunities for building inclusive financial sectors in the context of Africa. • Meeting to assist policy makers and other stakeholders in building access to a broad range of financial products and services in Africa. • Issues pertaining to financial sector development in the region placed within the analytical framework established in the Blue Book.

14. Expected Outcomes: Deeper understanding by policymakers and stakeholders regarding the experience, issues, and challenges when considering financial inclusion in Africa. Enhanced momentum to move forward at national and regional levels to develop national strategies and actions plans for building inclusive financial sectors and to implement those plans. Issuance of a Declaration from the Dakar Conference regarding key challenges, constraints and opportunities for building inclusive financial sectors in Africa. Building Inclusive Financial Sectors for Development Going forward: Dakar Conference

15. UNCDF Blue Book Website: http://www.uncdf.org/bluebook. PDF version of the full Blue Book text and Executive Summary available for download in English, French and Spanish. UNDESA “Financing for Development” Website on Inclusive Finance: http://www.un.org/esa/ffd/09multi-stake-consul-flyer-finsector.htm. Information on Dakar Conference available at: http://www.uncdf.org/english/microfinance/dakar_conference/index.php. Building Inclusive Financial Sectors for Development For more Information